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Mind Map by Sophia Richmond, updated more than 1 year ago
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Created by Sophia Richmond
over 8 years ago
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Finance Unit 3 HL/SL 3.1-3.4
- Sources of Finance (3.1)
- Capital Expenditure
- Money spent to acquire fixed assets in a Business
- Money spent to acquire fixed assets in a Business
- Revenue Expenditure
- Money used in a day to day running of the Business
- Money used in a day to day running of the Business
- Internal Sources of Finance
- Personal Funds
- A source of finance for
sole traders that comes
mostly from their own
personal savings
- A source of finance for
sole traders that comes
mostly from their own
personal savings
- Retained
Profit
- Profit that remains after a Business
has paid corporation tax to the
government and dividends to its
shareholders
- Profit that remains after a Business
has paid corporation tax to the
government and dividends to its
shareholders
- Sales of Assets
- When a Business sells off its
unwanted or unused assets to
raise funds
- When a Business sells off its
unwanted or unused assets to
raise funds
- Personal Funds
- External Sources of Finance
- Share Capital
- Money raised from the sale of shares
of a limited company
- Money raised from the sale of shares
of a limited company
- Loan Capital
- Money sourced from financial institutions such
as banks with interest charged on the loan to
be repaid
- Money sourced from financial institutions such
as banks with interest charged on the loan to
be repaid
- Overdrafts
- When a lending institution allows a firm to withdraw
more money than it currently has in its account
- When a lending institution allows a firm to withdraw
more money than it currently has in its account
- Trade Credit
- An agreement between Businesses that allows the
buyer of goods or services to pay the seller at a
later date
- An agreement between Businesses that allows the
buyer of goods or services to pay the seller at a
later date
- Grants
- Funds usually provided by a government, foundation,
trust or other agency to Businesses that do not need to
be repaid
- Funds usually provided by a government, foundation,
trust or other agency to Businesses that do not need to
be repaid
- Subsidies
- Financial assistance granted by a government, a NGO, or an
individual to support business enterprises that are in the public
interest
- Financial assistance granted by a government, a NGO, or an
individual to support business enterprises that are in the public
interest
- Debt Factoring
- A financial arrangement where the debt factor takes on the
responsibility for collecting the debt owed to the Business and
provides the Business with a percentage of the owed debt in cash
- A financial arrangement where the debt factor takes on the
responsibility for collecting the debt owed to the Business and
provides the Business with a percentage of the owed debt in cash
- Leasing
- A source of finance that allows a firm to
use an asset with having to purchase it
by cash
- A source of finance that allows a firm to
use an asset with having to purchase it
by cash
- Venture Capital
- Financial capital provided by
investors to high-risk,
high-potential start-up firms or
small Businesses
- Financial capital provided by
investors to high-risk,
high-potential start-up firms or
small Businesses
- Business Angels
- Highly affluent individuals who provide financial capital to small
start-up or entrepreneurs in return for ownership equity in their
Businesses
- Highly affluent individuals who provide financial capital to small
start-up or entrepreneurs in return for ownership equity in their
Businesses
- Share Capital
- Short term Finance
- Medium Term Finance
- Long Term Finance
- Factors influences source of Finance
- Purpose or use of Funds
- Cost
- Status and Size
- Amount Required
- Flexibilty
- State of the External Environment
- Gearing
- Purpose or use of Funds
- Capital Expenditure
- Cost and Revenues (3.2)
- Types of Costs
- Fixed Assets
- Cost that do not change with the amount of goods
or services provided
- Cost that do not change with the amount of goods
or services provided
- Variable Cost
- Costs that change with the number of goods or services
produced
- Costs that change with the number of goods or services
produced
- Semi-Variable Costs
- Costs comprising both fixed and
variable components
- Costs comprising both fixed and
variable components
- Direct Costs
- Costs that can be identified with the production
of specific goods or services
- Costs that can be identified with the production
of specific goods or services
- Indirect Costs
- Costs that are not clearly identified with the
production of specific goods or services
- Costs that are not clearly identified with the
production of specific goods or services
- Revenue
- A measure of the money generated from
the sale of goods and services
- A measure of the money generated from
the sale of goods and services
- Total Revenue
- The total amount of money a firm receives from the sale of
goods or services, found by multiplying the price per unit
by the number of units sold
- The total amount of money a firm receives from the sale of
goods or services, found by multiplying the price per unit
by the number of units sold
- Fixed Assets
- Types of Costs
- Break-even Analysis (3.3)
- Contribution
- Contribution per Unit
- The difference between the selling price per unit and variable cost per unit
- Contribution per Unit= Price per Unit -Variable cost per unit
- The difference between the selling price per unit and variable cost per unit
- Total Contribution
- The difference between the total sales revenue and the total variable costs
- Total Contribution = Total Revenue - Total Variable Costs
- Total Contribution = Contribution per Unit X Number of Units Sold
- The difference between the total sales revenue and the total variable costs
- Profit
- Obtained by subtracting total fixed cost from the total contribution
- Profit = Total Contribution - Total fixed Costs
- Obtained by subtracting total fixed cost from the total contribution
- Contribution per Unit
- Break-even
- Break-even Chart
- A graphical method that
measures the value of a
firm's costs and revenues
against a given level of
output
- A graphical method that
measures the value of a
firm's costs and revenues
against a given level of
output
- Margin of Safety
- Margin of Safety = Current Output - Break-even Output
- The output amount that exceeds
the break-even quantity
- Margin of Safety = Current Output - Break-even Output
- Calculating Break-even Quantity
- Break-even Quantity = Fixed Costs/ Contribution per Unit
- Total Revenue = Total Costs
- A measure of Output where total revenue equals total costs
- Break-even Quantity = Fixed Costs/ Contribution per Unit
- Profit/Loss
- Profit = Total Revenue - Total Costs
- The positive difference between Total Revenue and Total Costs
- Profit = Total Revenue - Total Costs
- Target Profit
- Target Profit Output
- The level of output that is needed to earn a
specified amount of profit
- Target Profit Output = (Fixed Costs +Target
Profit) / Contribution per Unit
- The level of output that is needed to earn a
specified amount of profit
- Target Profit Output
- Break-even Revenue
- Break-even Revenue = (Fixed Costs / Contribution per Unit) X Price per Unit
- Break-even Revenue = (Fixed Costs / Contribution per Unit) X Price per Unit
- Break-even Chart
- Contribution
- Final Accounts (3.4)
- Purpose of different Stakeholders
- Shareholders
- Managers
- Employees
- Customers
- Suppliers
- The Government
- Competitors
- Financiers
- The Local Community
- Shareholders
- The Main Final Accounts
- Profit and Loss Account
- Also known as the
income statement,
shows the records of
income and
expenditure flows of
a Business over a
given time period
- A) The Trading Account
- Gross Profit
- Found by deducting cost
of goods sold from sales
revenue
- Gross Profit = Sales Revenue - Cost of Sales (Or Goods Sold)
- Found by deducting cost
of goods sold from sales
revenue
- Cost of Sales
- The direct cost of producing or purchasing the goods
that were sold during that period
- Cost of Sales = Opening Stock + Purchases - Closing Stock
- The direct cost of producing or purchasing the goods
that were sold during that period
- Gross Profit
- B) The Profit and Loss Account
- Net Profit before Interest and Tax
- The difference between
gross profit and
expenses
- Net Profit before Interest and Tax = Gross Profit - Expenses
- The difference between
gross profit and
expenses
- Net Profit before Tax
- Found by subtracting Interest from
the Net profit before Interest and
Tax
- Net Profit before Tax = Net Profit before Interest and Tax - Interest
- Found by subtracting Interest from
the Net profit before Interest and
Tax
- Net Profit after Interest and Tax
- Equal to net profit before tax less tax
- Net Profit after Interest and Tax = Net Profit before tax - Corporation Tax
- Equal to net profit before tax less tax
- Net Profit before Interest and Tax
- C) The Appropriation Account
- Dividends
- A sum of money paid to
shareholders decided by
the board of directors of
a company
- A sum of money paid to
shareholders decided by
the board of directors of
a company
- Retained
Profit
- The amount of earnings left after
Dividends and other deductions have
been made
- Retained Profit = Net Profit after Interest
and Tax - Dividends
- The amount of earnings left after
Dividends and other deductions have
been made
- Dividends
- Also known as the
income statement,
shows the records of
income and
expenditure flows of
a Business over a
given time period
- Balance Sheet
- A financial
statement that
outlines the assets,
liabilities and equity
of a firm at a
specific point in
time
- Assets
- Resources of value that a
Business owns or that
are owed to it
- Fixed Assets
- Long term assets;
Buildings, Equipment,
Vehicles, and Machinery
- Long term assets;
Buildings, Equipment,
Vehicles, and Machinery
- Current Assets
- Short Term assets; Cash, Debtors, and Stock
- Short Term assets; Cash, Debtors, and Stock
- Resources of value that a
Business owns or that
are owed to it
- Liabilities
- A firm's legal debts or what it owes to
other firms, institutions or individuals
- Long-Term
- Long-term debts; Bank Loans and Mortgages
- Long-term debts; Bank Loans and Mortgages
- Current Liabilities
- Short Term; Creditors, Overdrafts,
short term loans, tax
- Short Term; Creditors, Overdrafts,
short term loans, tax
- A firm's legal debts or what it owes to
other firms, institutions or individuals
- Working Capital
- Also known as Net current
assets, helps establish whether a
firm can pay its day-to-day
running costs
- Working Capital = Total Current Assets - Total Current Liabilities
- Also known as Net current
assets, helps establish whether a
firm can pay its day-to-day
running costs
- Total Assets less Current
Liabilities
- Total Assets less Current Liabilities = Fixed Cost + Working Capital
- Total Assets less Current Liabilities = Fixed Cost + Working Capital
- Net Assets
- Found by subtracting long-term liabilities from total
assets less current liabilities. This is what the Business
Owns on the Balance Sheet
- Found by subtracting long-term liabilities from total
assets less current liabilities. This is what the Business
Owns on the Balance Sheet
- Equity
- Financed By
- Share Capital
- Retained Profit
- Share Capital
- Also known as Shareholders' equity,
shows how the net assets are
financed using shareholders' capital
and retained profit
- Equity = Retained Profit + Share Capital
- Equity = Net Assets
- Financed By
- A financial
statement that
outlines the assets,
liabilities and equity
of a firm at a
specific point in
time
- Profit and Loss Account
- Intangible Assets
- Patents
- Provide inventors with the exclusive rights to
manufacture, use, sell or control their invention
of a product
- Provide inventors with the exclusive rights to
manufacture, use, sell or control their invention
of a product
- Goodwill
- The value of positive or
favourable attributes that relate
to the Business
- The value of positive or
favourable attributes that relate
to the Business
- Copyright
Laws
- Laws that provide creators
with the exclusive right to
protect the production and
sale of their artistic or literary
work
- Laws that provide creators
with the exclusive right to
protect the production and
sale of their artistic or literary
work
- Trademark
- A recognizable symbol, work, phrase or design that is
officially registered and that identifies a product or
Business
- A recognizable symbol, work, phrase or design that is
officially registered and that identifies a product or
Business
- Patents
- Depreciation (HL)
- The decrease in value of a fixed asset over time
- Straight Line Depreciation
- A method that spreads out the cost
of an asset equally over its lifetime
by deducting a given constant
amount of depreciation of the
asset's value per annum
- Annual Depreciation = ( Original Cost - Residual Value ) / Expected useful life of Asset
- A method that spreads out the cost
of an asset equally over its lifetime
by deducting a given constant
amount of depreciation of the
asset's value per annum
- Reducing Balance Method
- A method where a predetermined percentage
depreciation rate is used and subtracted from
the Net Book Value of the previous year
- Net Book value in Year 1 = Cost of Original asset - (Cost of original asset X Rate of Depreciation [%])
- Depreciation
Rate=1-n√(Residual
Value)/(Cost of Fixed Asset)
- Depreciation
Rate=1-n√(Residual
Value)/(Cost of Fixed Asset)
- A method where a predetermined percentage
depreciation rate is used and subtracted from
the Net Book Value of the previous year
- Residual Value
- An estimation of an asset's
worth or value over its
useful life, also known as
scrap or salvage value
- An estimation of an asset's
worth or value over its
useful life, also known as
scrap or salvage value
- The decrease in value of a fixed asset over time
- Purpose of different Stakeholders
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